EU's Barroso urges Germany to act on euro imbalances

Reuters Staff

3 Min Read

President of the European Commission Jose Manuel Barroso delivers his "First Europe Speech" in Frankfurt, November 5, 2013. REUTERS/Kai Pfaffenbach

FRANKFURT (Reuters) - European Commission President Jose Manuel Barroso urged Germany on Tuesday to do more to address economic imbalances in the euro zone by opening up its services market and allowing wages to rise at a faster pace.

In a speech in St. Paul’s Church in Frankfurt, the seat of the first democratically-elected parliament in Germany, Barroso said Germany had “homework” to do to ensure stability in the currency bloc, borrowing one of Chancellor Angela Merkel’s favourite terms for prodding reform in the struggling south.

“Stronger economies paying for the weaker economies is not the answer,” Barroso said. “What we do need, in contrast, is the correction of existing macro-economic imbalances, notably in the euro area. This is where Germany by its own legitimate interest can give a contribution.”

Barroso’s language was softer than that of the United States, which reprimanded Germany last week for relying too heavily on exports, an approach it said hampered economic stability in Europe and hurt the global economy.

But his message was similar. He said Europe’s single market in its current form allowed Germany to “play out its competitive advantages” in technology and industry.

“In turn, Germany could do more to enable also the others to bring in their respective assets, for example, through free and unhindered access to the service markets across Europe including Germany, or through wages in line with productivity,” he said.

“Thus more open markets in the stronger economies would be a very important contribution to the recovery of the weaker economies.”

Germany has exported more than it imports since 1952, running a trade deficit only in the early years of economic devastation after World War Two. Its trade surplus is largest vis-a-vis France, the United States and Britain.

Merkel’s government has rejected the U.S. criticism, spelled out in a semi-annual report by the Obama administration to Congress, that it should do more to spur imports.

German officials point out that Europe’s largest economy has more than halved its current account surplus with the euro zone as a share of gross domestic product since 2007.

Trade is expected to subtract from rather than support economic growth in 2013, and wages have been rising steadily in recent years, after a decade of stagnation, boosting domestic demand.

Despite this progress, Germany’s overall current account surplus still stood at 6.9 percent of gross domestic product (GDP) last year - higher than the 6 percent threshold that Barroso’s European Commission considers excessive.